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Exchange Rate Pass-Through (ERPT) and its Implications for Vietnam: Vector Autoregressive Approach from Vietnam-Korea Trade Data

Author

Listed:
  • DO Thi My Huong

    (Banking Academy of Vietnam)

  • CAO Hong Minh

    (Banking Academy of Vietnam)

Abstract

This article investigates the exchange rate pass-through (ERPT) into Vietnam?s import price and consumer price index employing the trade data between Vietnam and Korea for the period from Jan 2008 ? March 2017 on a monthly basis. From the empirical outcome of the Vector Autoregressive (VAR) model, the ERPT coefficients for import price are quite low and statistically insignificant, which implies that the price of importing goods from Korea might depend mainly on other factors rather than KRW/VND exchange rate. On the contrary, the transmission from exchange rate to Vietnam?s consumer price index is so complete that a 1% shock in exchange rate can cause a change by 0.994% in consumer price index at lag order 2. This result is further confirmed by variance decomposition and Granger causality tests which reveal that the exchange rate shock builds the strongest influence on the fluctuation of Vietnam?s inflation rate.

Suggested Citation

  • DO Thi My Huong & CAO Hong Minh, 2019. "Exchange Rate Pass-Through (ERPT) and its Implications for Vietnam: Vector Autoregressive Approach from Vietnam-Korea Trade Data," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 257-266, February.
  • Handle: RePEc:asi:aeafrj:2019:p:257-266
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    References listed on IDEAS

    as
    1. Matthieu Bussière & Simona Delle Chiaie & Tuomas A Peltonen, 2014. "Exchange Rate Pass-Through in the Global Economy: The Role of Emerging Market Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(1), pages 146-178, April.
    2. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.).
    3. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    4. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    5. repec:wsi:serxxx:v:54:y:2009:i:04:n:s0217590809003458 is not listed on IDEAS
    6. Bijsterbosch, Martin & Beirne, John, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series 1120, European Central Bank.
    7. Carlos Cortinhas, 2009. "Exchange Rate Pass-Through In Asean: Implications For The Prospects Of Monetary Integration In The Region," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(04), pages 657-687.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange rate pass-through; (ERPT); Import price; Consumer price index; Vector Autoregressive model; Vietnam; Korea.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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